Creative Destruction Related to Farms

When I (Myron) was young, the United States produced a lot of extra food that was exported to many countries. The U.S. was called the breadbasket of the world. But times have changed. The number of farms have decreased, population has increased and we now import almost 50% of our food. What has perplexed me is that the government doesn’t seem to care that each year we have to import a greater portion of our food. Part of our national security is our ability to produce our own food and not have to rely on other countries for our food. There are many things we can live without, but we can’t live without food.

Recently, I found out the reason why farms have been declining in America. It is part of financial engineering by the Federal Reserve in an attempt to create a higher standard of living for Americans. The economic theory is called "Creative Destruction". The philosophy of creative destruction also explains why the U.S. government changed regulations for domestic manufacturing and clothing factories so that it became too costly to produce their products in the U.S. The result has been that most of our manufacturing segment has moved oversees. Before we go any further, I want to make it clear that the concept of creative destruction is not a conspiracy theory of someone speculating on the motives of the Federal Reserve. It is a philosophy that the Fed has clearly stated it is using. The following are former Federal Reserve chairman Alan Greenspan’s own words from a speech given on Oct. 21, 2007:

"We have been doing things different for quite a long period of years. And many of them turned out to be awful. So I think that the issue always rests in capitalist market economy which as you point out has its roots and its necessities in creative destruction because remember it is only creative destruction that creates higher standards of living.

"Because by definition creative destruction is essentially moving the capital from less productive obsolescent industries to cutting edge technology related industries and by definition the moving a body of capital from the low output per man hour type industries to higher man hour output industries and that obviously raises the average and its only the average increase in productivity which generates higher standards of living. There is no other way that we have found and that includes having oil in the ground or gold somewhere. Adam Smith is right it is essentially the wealth of nations is determined by productivity and productivity can be advanced only in broad economies such as those which we deal with by a form of competitiveness and that generates creative destruction.

"As I say in the book I’ve just written there is a very significant problem here of the destruction part. Because remember when you move the capital from the lesser productive industries to the more, you also have to move people. And its always been a major problem in the fact that there are losers as well as winners and how to handle that problem is always been critical and necessary in order to maintain a viable market system. But the truth of the matter is there is no other system which has worked as well." (From the website: http://www.womensgroup.org/Per-Jacobsson-Foundation-Lecture.htm?eventID=941)

Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas, in a speech to the governors of the southern states, said the following:

"The destructive side of capitalism’s creative destruction is evident in lost jobs. Let me share a few numbers for the states you govern. The number of workers in apparel manufacturing in your states decreased 80 percent between 1990 and 2005. In the same 15-year period, payrolls fell 18 percent at paper manufacturers and 15 percent for furniture makers. The number of farm workers decreased 6 percent, and the number of mine workers declined 5 percent. That is pretty painful stuff. And it is not ancient history. It all occurred within a time frame that is fresh in the memory of everyone in this room—between 1990 and 2005.

"And yet, despite these employment losses, each state in the Southern region now has a larger job base than it did in 1990. North Carolina, for example, has created 1 million net new jobs since 1990. Texas’ employment has risen by more than 3 million since 1990.

"Why? Because the creative side of creative destruction outpaced the destructive side. Your economies replaced lost jobs in declining sectors with new ones in emerging, higher-value-added sectors. Between 1990 and 2005, the number of data processing and Internet service provider workers in Southern states increased 65 percent. Professional services workers grew 63 percent. Financial services employees increased 31 percent. Retail employment grew 23 percent. By 2005, the financial and real estate services sectors employed as many Southern workers as the manufacturing sector. Lodging and food services accounted for the same share of the Southern workforce as construction.

"Health care sector employment in the South alone grew by 2.3 million from 1990 to 2005. Let me put that in perspective: For every manufacturing job lost in the Southern states between 1990 and 2005, the health care sector created 2.4 new jobs." (from the website http://www.dallasfed.org/news/speeches/fisher/2007/fs070825.cfm)

Time will tell if creative destruction is the greatest thing the Federal Reserve ever did, or if it will turn out, to use Alan Greenspan’s words, "to be awful". There are a number of questions that comes to my mind. Is creative destruction sustainable in the long run when we give up industries, food and clothing, that are basic necessities of life? If creative destruction is sustainable, why do we need 2.4 new health care workers for every manufacturing job that was lost? Is our health decreasing so fast from eating cheap food that we need that many more health care workers? Do politicians really believe that increasing the health care industry is more sustainable for the US economy in the long run than producing food?

Cathy and I are of the opinion that the intentional creative destruction of local farms and the government’s encouragement of eating cheap food has been a mistake. However, rather than focus on the negative, on our farm we are rowing against the flow of creative destruction to provide you with nutritious, nutrient dense, healthy, local food that is difficult to find, but which is important for your health. This year we encourage you to eat local for your health and the financial health of the local farms who are rowing against the flow of creative destruction.